The Best Energy Investments in the World

In the past three years, Marin Katusa, senior energy analyst at Casey Research,
has become one of the most respected and listened-to authorities in the investment
advisory business. He spends the bulk of his time on airplanes and in far-off
places studying the future of energy... and the best ways to make money from
it.

Brian Hunt, editor in chief of Stansberry's free online investment digest,
The Daily Crux, interviewed Marin to get his take on where oil prices are
headed for the long-term... the regions where investors and traders should
focus their dollars... and some of his favorite energy companies with massive
upside.

The Daily Crux: Marin... we noticed you guys at Casey Research are
bullish on energy. Can you explain to us why?

I think there's a very good chance oil will be knocked back down along with
other markets in the short term, but I'd consider that a rare opportunity to
buy the best companies at a steep discount. Long term, I'm very bullish on
oil because I think the supply of cheap oil is running out.

The days of cheap and easy oil are over. Oil is getting harder and harder
to extract because most of the easy-to-find deposits have already been found
and extracted.

The best remaining deposits are deep underwater like in the Gulf of Mexico
or offshore of Brazil, in state-controlled or politically unstable areas like
Iran and Venezuela, or experiencing dramatically falling production like Mexico.
There are also huge oil-sands deposits in Canada, but these are more expensive
to extract - anywhere from $35-$40 per barrel for existing production, up to
$65 or more for new production.

The simple fact is oil prices will eventually rise due to the increased costs
involved in meeting existing demand.

On top of that, you've got developing countries beginning to significantly
increase their own demand. Right now, you've got just 30 or so of the world's
most developed countries, known as the OECD, that consume about half of all
the oil produced.

As emerging countries like China and India begin to increase their standard
of living, they'll start using a lot more oil. As you guys know, oil consumption
per capita is tied very closely to GDP per capita of the country. So this means
these emerging countries could be using multiples of the oil that they use
now.

Today, China uses just under six barrels of oil per day for every thousand
people. In India, it's about two and a half barrels for every thousand. In
the U.S., it's just under 70 barrels for every thousand. Even if you figure
just a 20% increase in China and India per person - those are huge, huge numbers.
China alone has over a billion people. This is going to add tremendous upward
pressure on prices.

And of course, I'm sure your readers are aware of the long-term threats to
the U.S. dollar. Dollar depreciation will only make the problems I just mentioned
that much worse.

That said, in the short term, I think oil is very vulnerable to pullbacks
in the general stock market. So we've been telling our subscribers to be very
cautious. In fact, a year ago, I decided to use $40 oil as the basis for all
of our analyses for our newsletter. If a company we were looking at wouldn't
be profitable at $40 oil, then we wouldn't go any further. The logic behind
$40 was to provide a real margin of safety should we get the correction in
oil I'm expecting.

But it also pushed me to look a lot deeper and be more selective, and it's
really paid off in our results - over 90% of my recommendations over the last
year have delivered significant profits for our subscribers.

The funny thing is that by not using $70 or $80 oil, I started getting hate
mail from people, saying, "Don't you know oil's at $73 and you're using $40?" It
was hilarious, but that's exactly my point. If a company cannot be profitable
at $40 per barrel of oil, it will underperform its peers even when oil is higher.
When I use $40 oil and I like the financials - it's gold.

A good example of this is what we did with Nexen. When I first wrote it up,
it was trading at C$23 per share. After doing my analysis, I thought its intrinsic
value was less. I said, "Buy under C$16 per share." Of course, I got people
writing in saying I was out of my mind for setting the buy price so low. Just
over a month later, it was trading down below C$16 per share, and my subscribers
ended up making about 50% within four months on a low-risk company.

So by using $40 oil, I get my true value, rather than the market value. There's
a difference between intrinsic value and the market value, and I go with intrinsic
value. I don't care what people are paying in the market right now. You might
not get it today, you might not get it next week. You have to be patient. It's
what I call "stink bid investing."

Crux: What else do you look for?

Katusa: Another factor I like to look at is what I call game changers.
An example of a game changer is what has recently happened to the natural gas
sector in the United States. Companies were victims of their own success, because
they were so successful in using new technologies to retrieve gas from the
shales, they drove the natural gas price down.

Using advanced technologies to discover big offshore deposits is an example
of a game changer in oil. But what you're going to see is a lot of the big
finds are going to be drilled by the major oil companies - what I call the
super majors - because it's just so expensive to drill these targets.

Crux: Nobody else has the money.

Katusa: That's right. So the only frontiers left for conventional oil
production that can be extracted easily and cheaply, like I mentioned before,
are in politically unstable countries like Iran, Iraq, Libya.

These countries are fully aware of the potential of their resources locked
within their borders. They're increasing the royalties they charge, including
the gradual increase in the use of service fee contracts.

We spent a whole issue talking about this in our Casey Energy Report,
in the October issue. In countries where the governments hold the ownership
of the oil - such as south central Iraq, Kuwait, even potentially Mexico -
these are places that you want to watch out for, because they are constitutionally
barred from giving foreign oil companies ownership of the oil in the ground.
They're not as positive as people think they are.

A reliable and friendly oil source to the United States, such as the Alberta
oil sands, is not cheap to produce. The oil sands require at least $35-$40
per barrel at the very minimum to extract, compared to less than $5 per barrel
in places like Saudi Arabia, Iraq, and Kuwait.

Proven reserves in politically stable parts of the world unfortunately will
cost the U.S. consumer a lot more money per barrel. We spent a lot of time
in our latest issue of Casey's Energy Opportunities looking at all of
the national oil companies. Of those, you've really only got three you can
possibly invest in, if you dare.

Crux: How about your take on the likelihood of big takeovers and buyouts?
Do you see oil-hungry nations like China coming in to buy up a lot of reserves?

Katusa: Absolutely, but it's not just going to be the Chinese, it's
also going to be big oil companies who want to replace their production with
proven reserves in the ground.

An advantage the Chinese companies will have over the Western oil companies
is the Chinese ability to leverage their political and economic muscle in places
such as Africa, Venezuela, and Bolivia.

These countries potentially hold world-class oil deposits, but it's much riskier
for a Western company to explore these regions than the powerful Chinese oil
companies.

Crux: China is already in a bidding war with ExxonMobil for African
oil...

The company needs to go in with a crew able to maneuver in politically unstable
parts of the world. We had a big and fast win on a company called Tanganyika
Oil, using just that concept. They went in, they built up production, then
sold the company to the Chinese.

We're doing it again right now on a company called Africa Oil - ticker symbol
is AOI on the Toronto Venture Exchange - that's partnering with the Chinese.

The man behind AOI is the same person behind Tanganyika Oil, Lukas Lundin.

Lukas Lundin, like his father before him, has a long record of going into
politically unstable parts of the world and succeeding in developing world-class
deposits and selling them at huge gains for the investors. So you're going
to see a lot of this type of partnering going on where the Chinese want the
North American expertise, and in return, the Chinese add value by political
clout and financial clout, helping to pay the costs of development.

We wrote up Africa Oil as a buy under C$1, and when it popped up to about
C$1.50, we told our subscribers to take a Casey Free Ride [a profit-taking
strategy] when the stock was trading above C$1.30, and it subsequently went
as high as C$1.70. Currently we have AOI as a buy under C$1, and it's trading
at C$0.87, which we view as a very cheap cost for this stock.

Crux: Are there any other countries you're interested in right now?
Are you interested in Iraq?

Katusa: In northern Iraq in the Kurdistan region, there are some good
onshore blocks with decent royalty rates.

A company called ShaMaran (ticker symbol is SNM on the Venture Exchange) we
think has huge potential. It's totally cashed up. I wrote it up as a buy under
C$0.20 and put two buy signals on it. It's trading at C$0.57 now. It went as
high as C$0.80.

And they've got about C$0.25 in cash per share. This was a company that was
trading less than cash - they had more cash than the market cap. Our shareholders
bought millions of shares, because we were the only ones writing it up. And
it had zero interest - there was nothing going on with it. And they're now
in northern Iraq in the area of Kurdistan, which has huge, huge potential.

I've also been looking at Colombia. I think that's a country that people have
to pay attention to. In the last month, a lot of the smart money, the big,
big players in Vancouver - Frank Giustra and Sam Magid - have been putting
huge money, their own personal money, into a bunch of oil plays in Colombia.
I would recommend your readers take a look at some Colombia plays. One that
I really like is Petroamerica, symbol PTA on the Venture Exchange.

Crux: Great. Any parting thoughts?

Katusa: I think what you have to emphasize to people is to buy at a
discount to intrinsic value when it's unpopular, and sell at market value when
it's popular.

That's not just being a contrarian. A contrarian is just buying something
that's unpopular. Buy something unpopular that has a great discount to its
intrinsic value, and when you sell, sell when it's popular and trading at the
market value, not at its intrinsic value. So those are the two rules that I
have.

Crux: Thanks for your time.

Katusa: My pleasure.

As mentioned above, Marin's track record for profiting in resources like crude
oil, natural gas, and uranium is unmatched in the industry.

If you're interested in reading a monthly analysis on the trends and stocks
Marin likes, you can get on board as a Casey Energy Opportunities subscriber
for only $39 per year. It's an incredible deal and completely risk-free, with
our 3-month, 100% money-back guarantee. You
can learn more about a subscription here.

Marin Katusa, an accomplished investment analyst, is the senior editor of
Casey Energy Opportunities, Casey Energy Confidential, and the Casey 50. He
left a successful teaching career to pursue analyzing and investing in junior
resource companies. In addition, he is a member of the Vancouver Angel Forum
where he and his colleagues evaluate early seed investment opportunities. Marin
also manages a portfolio of international real estate projects. Using advanced
mathematical skills, he has created a diagnostic resource market tool that
analyzes and compares hundreds of investment variables. Through his own investments,
Marin has established a network of relationships with many of the key players
in the junior resource sector in Vancouver. Marin has the connections, the
mathematical and analytical acumen to bring the best investment ideas and most
promising private placement offerings to Casey Research subscribers.

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